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November 15, 2008

American Enterprise Institute publications of interest on poverty

The American Enterprise Institute has two newer books that might be of interest, even if their stance is not that of most of the reports posted (the political perspective of the AEI can be found here):

Prices 1. Christian Broda & David E. Weinstein, Prices, Poverty, and Inequality: Why Americans Are Better Off Than You Think (AEI 2008).  Abstract Below:

According to conventional wisdom, the economic well-being of all but the wealthiest Americans has stagnated or declined over the past twenty-five years. In Prices, Poverty, and Inequality: Why Americans Are Better Off Than You Think, Christian Broda and David E. Weinstein argue that this idea is based upon misleading measurements of wealth and poverty. The consumer price index used to compute official measures of real wages and poverty ignores two key sources of increased prosperity: the introduction of new and better products and consumers' ability to substitute between goods. Deflating nominal wages by a cost-of-living index that adjusts for these previously unconsidered factors of prosperity suggests that the real wages of the poor have actually risen by 30 percent since the late 1970s--and that the poverty rate in America has fallen dramatically over the last forty years.

How can we account for the discrepancy between standard measures of economic well-being--which suggest a trend of increased poverty--and alternative measures that indicate an upswing in prosperity? As Broda and Weinstein argue, product innovation has long been a key source of prosperity for American households. New and better household appliances, cellular phones, vehicle air bags, medicines, and computers are among the many product improvements that have benefited Americans, including the poor, over the last few decades. Yet current official price statistics capture only a portion of the benefits that these improved goods provide to American households. Broda and Weinstein conclude that adjusting poverty measures to fully account for the benefits of product improvements reveals that Americans in every income group are substantially better off economically than they were a quarter century ago.

Povertyrate 2. Nicholas Eberstadt, The Poverty of the "Poverty Rate": Measure and Mismeasure of Want in Modern America (AEI 2008).  AEI is hosting a book forum, info here, discussing this book on Wednesday Nov. 19, 2008.  Abstract below:

Since its inception in 1965, America's official poverty rate (OPR) has been the single most important statistic used by policymakers and concerned citizens to evaluate success or failure in the nation's ongoing struggle against material need. But in a critical new examination of this widely followed measure, Nicholas Eberstadt charges that the OPR is, in reality, "a broken compass"--a flawed index generating increasingly misleading numbers about poverty in the United States.

The OPR was originally intended to track an absolute level of poverty over time by comparing a family's reported pretax income against a corresponding poverty threshold. But for the past three decades, the OPR has reported trends that are jarringly inconsistent with other statistical indicators of material deprivation. What is the reason for this curious discrepancy? Eberstadt suggests that the OPR's most serious problem is its implicit assumption that poor families will spend no more than their reported annual incomes--in other words, that their income levels are an accurate proxy for their consumption levels. In the decades since the OPR was unveiled, the disparity between reported income and expenditures has progressively widened, making income an ever less reliable predictor of consumption patterns--and, consequently, living standards--for America's poorer families.

In The Poverty of "The Poverty Rate," Eberstadt contends that the defects of the current poverty rate are not only severe but irremediable. Income-based measures cannot offer a faithful portrait of consumption patterns or material well-being in the United States. Central though the OPR has become to antipoverty policy, this "untrustworthy yardstick" should be discarded and replaced by more accurate measures of deprivation.

-E.R. erosser@wcl.american.edu

November 15, 2008 in Books/Articles/Reports of Interest | Permalink

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